Bonavista Energy Trust
TSX : BNP.UN

Bonavista Energy Trust

May 11, 2006 16:01 ET

Bonavista Energy Trust Announces First Quarter Results

CALGARY, ALBERTA--(CCNMatthews - May 11, 2006) - Bonavista Energy Trust (TSX:BNP.UN) is pleased to report to unitholders its interim consolidated financial and operating results for the three months ended March 31, 2006.



------------------------------------------------------------------------
Highlights
------------------------------------------------------------------------
Three Months
ended
March 31, %
2006 2005 Change
-----------------------------------------------------------------------
(restated)
Financial
($ thousands, except per unit)

Production revenue 230,241 187,697 23

Funds from operations (1) 127,407 102,672 24
Per unit (1) (2) 1.27 1.09 17

Cash distributions 80,869 63,284 28
Per unit 0.99 0.83 19
Percentage of funds from operations
distributed 63% 62% 2

Net income 75,410 57,480 31
Per unit (2) 0.75 0.61 23

Total assets 1,982,941 1,803,148 10

Long-term debt, net of working capital 426,710 343,428 24

Unitholders' equity 1,118,024 988,262 13

Capital expenditures:
Exploitation and development 96,455 51,433 88
Acquisitions, net 5,245 6,560 (20)

Weighted average outstanding equivalent
trust units (thousands): (2)
Basic 100,452 94,491 6
Diluted 104,848 102,073 3

------------------------------------------------------------------------
Operating
(boe conversion - 6:1 basis)

Production:
Natural gas (mmcf/day) 180 177 2
Oil and liquids (bbls/day) 22,580 21,865 3
Total oil equivalent (boe/day) 52,654 51,302 3

Product prices:
Natural gas ($/mcf) 8.55 6.88 24
Oil and liquids ($/bbl) 44.96 39.85 13

Operating expenses ($/boe) 7.62 6.46 18

General and administrative expenses ($/boe) 0.51 0.44 16

Cash costs ($/boe) (3) 9.48 8.47 12

Operating netback ($/boe) (4) 28.74 24.25 19
------------------------------------------------------------------------
NOTES:
(1) Management uses funds from operations to analyze operating
performance and leverage. Funds from operations as presented does
not have any standardized meaning prescribed by Canadian GAAP and
therefore it may not be comparable with the calculations of similar
measures for other entities. Funds from operations as presented is
not intended to represent operating cash flow or operating profits
for the period nor should it be viewed as an alternative to cash
flow from operating activities, net income or other measures of
financial performance calculated in accordance with Canadian GAAP.
All references to funds from operations throughout this report are
based on cash flow from operating activities before changes in non-
cash working capital and abandonment expenditures. Funds from
operations per unit is calculated based on the weighted average
number of trust units outstanding consistent with the calculation of
net income per trust unit.

(2) Includes Exchangeable Shares and Exchangeable Units, which are
convertible into Trust Units on certain terms and conditions.

(3) Cash costs equal the total of operating, general and administrative,
interest expense and cash taxes.

(4) Operating netbacks equal total revenue less royalties,
transportation and operating expenses calculated on a BOE basis.

------------------------------------------------------------------------
Three Months ended
---------------------------------------------------
Trust Unit March 31, December 31, September 30, June 30,
Trading Statistics 2006 2005 2005 2005
------------------------------------------------------------------------
($ per unit,
except volume)

High 39.86 39.68 37.55 31.94
Low 33.45 29.83 31.13 28.11
Close 37.25 38.10 37.20 30.85
Average Daily Volume 265,472 321,089 276,274 227,737
------------------------------------------------------------------------


MESSAGE TO UNITHOLDERS

Bonavista Energy Trust ("Bonavista" or the "Trust") is pleased to report to its unitholders (the "Unitholders") the consolidated financial and operating results for the three months ended March 31, 2006. The results for the first quarter of 2006 represent eleven consecutive quarters of profitability for Bonavista since commencing operations as an energy trust in July 2003. The continued successful execution of Bonavista's proven strategies in the first quarter of 2006 is a testament to the validity and effectiveness of an operationally and technically focused energy trust. The first quarter of 2006 is also highlighted by continued strong commodity prices for both oil and natural gas and an increased selection of drilling and acquisition opportunities for Bonavista. This favourable environment creates the opportunity for Bonavista to continue to record strong and profitable results, both operationally and financially, for the remainder of 2006 and beyond.

Other significant accomplishments for Bonavista include:

- Delivered a total return to its Unitholders of 190%, comprised of a 133% increase in unit price and a 57% return from cash distributions, since inception as an energy trust on July 2, 2003. For the twelve months ended March 31, 2006, the total return to investors was 36%, which is in the top decile of industry performance. Bonavista's monthly cash distribution is $0.33 per trust unit, which represents a 32% increase in cash distributions since inception as an energy trust. The monthly distribution is comprised of a regular base distribution of $0.28 per trust unit, plus a supplementary distribution of $0.05 per trust unit due to the significant strength in commodity prices being realized. Bonavista's monthly cash distribution to unitholders currently results in a cash on cash yield of approximately 11%;

- Operationally, production volumes were a record 52,654 boe per day during the first quarter of 2006 as compared to 51,302 boe per day reported in the first quarter of 2005, and represents a 52% increase over the 34,600 boe per day on commencement as an energy trust on July 2, 2003. Our current production rate is approximately 52,800 boe per day;

- Experienced a very productive and successful first quarter, drilling a record level 129 wells with an overall 94% success rate;

- Continued to actively participate in acquiring undeveloped land by investing $7.2 million during the quarter, further enhancing our undeveloped land position and our future drilling prospect inventory to more than two years;

- Invested $101.7 million of capital during the first quarter of 2006, with $96.5 million in exploitation and development activities and $5.2 million in six synergistic acquisitions within our core regions;

- Generated funds from operations of $127.4 million ($1.27 per unit) and distributed 63% to Unitholders for the three months ended March 31, 2006, with the remaining funds from operations used to reinvest in the business to continue growing our production base;

- Continued to record strong profitable growth in the first quarter of 2006 with average return on equity of 27% and a strong net income to funds from operations ratio of 59%; and

- Maintained significant financial flexibility to take advantage of future investment opportunities in 2006 and beyond.

Strengths of Bonavista Energy Trust

Since restructuring into an energy trust in July 2003, Bonavista has maintained a high level of investment activity on its asset base. This activity stems from the operational and technical nature of our trust and our ability to uncover value from our assets within the Western Canadian Basin. Our long-standing technical teams have a solid understanding of our asset base and possess the necessary discipline to deliver profitable results to our Unitholders for the long-term. We actively participate in undeveloped land acquisitions through either crown land sales, property purchases or farm-in opportunities, which have continued to add to our already extensive low-risk drilling inventory. This has led to low cost reserve additions, lengthening of the reserve life index, and a growing production base. Our production base is weighted 57% towards natural gas, is geographically focused within select medium depth, multi-zone regions in Alberta, Saskatchewan and British Columbia and has one of the lowest operating cost structures in the oil and natural gas sector. In addition, these high working interest assets are predominantly operated by the Trust, ensuring that operating and capital cost efficiencies are maintained. All of these attributes combined result in top quartile operating netbacks for Bonavista.

Our team brings a successful track record of executing low to medium risk development programs, including both asset and corporate acquisitions, along with sound financial management. Unitholders benefit from a fully internalized, industry leading cost structure, which results in one of the lowest per unit overhead cost structures in the energy trust industry. The management team, along with a strong Board of Directors possess extensive experience in oil and natural gas operations, corporate governance and financial management. Directors and management also own approximately 17% of the Trust, resulting in an alignment of interests with all Unitholders.

MANAGEMENT'S DISCUSSION AND ANALYSIS

Management's discussion and analysis ("MD&A") of the financial condition and results of operations should be read in conjunction with Bonavista Energy Trust's ("Bonavista" or the "Trust") consolidated interim financial statements for the three months ended March 31, 2006 and the audited consolidated financial statements and MD&A for the year ended December 31, 2005. Our audited consolidated financial statements, Annual Report, and other disclosure documents for 2005 are available through our filings on SEDAR at www.sedar.com or can be obtained from Bonavista's website at www.bonavistaenergy.com.

Basis of Presentation - The financial data presented below has been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The reporting and the measurement currency is the Canadian dollar. For the purpose of calculating unit costs, natural gas is converted to a barrel of oil equivalent ("boe") using six thousand cubic feet of natural gas equal to one barrel of oil unless otherwise stated.

Forward-Looking Statements - Certain information set forth in this document, including management's assessment of Bonavista's future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Bonavista's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Bonavista's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements or if any of them do so, what benefits that Bonavista will derive therefrom. Bonavista disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Investors are also cautioned that cash-on-cash yield represents a blend of return of investor's initial investment and a return on investors initial investment and is not comparable to traditional yield on debt instruments where investors are entitled to full return of the principal amount of debt on maturity in addition to a return on investment through interest payments.

Non-GAAP Measurements - Within Management's discussion and analysis, references are made to terms commonly used in the oil and gas industry. Management uses funds from operations to analyze operating performance and leverage. Funds from operations as presented does not have any standardized meaning prescribed by Canadian GAAP and therefore it may not be comparable with the calculation of similar measures for other entities. Funds from operations as presented is not intended to represent operating cash flow or operating profits for the period nor should it be viewed as an alternative to cash flow from operating activities, net income or other measures of financial performance calculated in accordance with Canadian GAAP. All references to funds from operations throughout this report are based on cash flow from operating activities before changes in non-cash working capital and abandonment expenditures. Funds from operations per unit is calculated based on the weighted average number of trust units outstanding consistent with the calculation of net income per unit. Netbacks equal total revenue less royalties, transportation and operating expenses calculated on a boe basis. Total boe is calculated by multiplying the daily production by the number of days in the period. Management uses these terms to analyze operating performance and leverage.

Operations - Bonavista's exploitation and development program in the first three months of 2006 led to the drilling of 129 wells in its four core regions, with an overall success rate of 94%. This program resulted in 102 natural gas wells, 19 oil wells and 8 dry holes. Bonavista operated 61 of these wells, with an average working interest of 90% in the operated wells. Operatorship and high working interest ownership remain an integral part of our strategy to ensure control over the pace of our activity and control of spending on any given project. In addition to the exploitation and development program, Bonavista executed six complementary acquisitions in its core regions during the first three months of 2006.

Production - As a direct result of Bonavista's active and successful capital programs, production for the first quarter of 2006 increased 3% to a record 52,654 boe per day from 51,302 boe per day for the same period in 2005. Natural gas production increased 2% in the first quarter of 2006 to 180 mmcf per day from 177 mmcf per day for the same period a year ago, while total oil and liquids production in the first quarter of 2006 increased 3% to 22,580 bbls per day (comprised of 15,642 bbls per day of light and medium oil and 6,938 bbls per day of heavy oil) from 21,865 bbls per day (comprised of 15,576 bbls per day of light and medium oil and 6,289 bbls per day of heavy oil) for the same period a year ago. Our current production is approximately 52,800 boe per day consisting of 57% natural gas, 30% light and medium oil and 13% heavy oil. Bonavista will continue to focus on a diversified commodity investment approach to minimize our dependence on any one product.

Production revenue - Production revenue for the first quarter of 2006 increased by 23% to $230.2 million from $187.7 million in the first quarter of 2005. This increase is attributable to a 3% increase in production volumes and a 20% increase in commodity prices on a boe basis. In the first quarter of 2006, natural gas prices averaged $8.55 per mcf, up 24% from $6.88 per mcf for the same period in 2005. The average oil and liquids price also increased 13% to $44.96 per bbl (comprised of $51.71 per bbl for light and medium oil and $29.75 per bbl for heavy oil) in the first quarter of 2006 from $39.85 per bbl (comprised of $44.84 per bbl for light and medium oil and $27.47 per bbl for heavy oil) for the same period in 2005.

Commodity hedging - As part of our financial management strategy, the Trust has adopted a disciplined commodity-hedging program. The purpose of the hedging program is to reduce volatility in the financial results, protect acquisition economics and stabilize cash flow and Unitholder distributions against the unpredictable commodity price environment. At any given period of time, our hedging strategy is restricted to a maximum hedge position of 60% of forecasted production, net of royalties, and primarily utilizes costless collars in our hedging portfolio. This strategy limits our exposure to downturns in commodity prices while allowing for more participation in commodity price increases. For the three months ended March 31, 2006, we incurred a net loss of $1.3 million, due to stronger commodity prices realized in excess of our hedge positions.

Royalties - For the three months ended March 31, 2006 royalties increased 25% from $38.8 million to $48.5 million primarily as a result of the higher revenues derived from the increases in production volumes and commodity prices realized. Royalties as a percentage of revenue for the first quarter also increased from 20.7% in 2005 to 21.1% in 2006, primarily as a result of stronger commodity prices. For the three months ended March 31, 2006, royalties as a percentage of revenues by product were 22.7% for natural gas, 20.1% for light and medium oil and 12.8% for heavy oil. In the first quarter of 2005 royalties as a percentage of production revenue by product were 22.5% for natural gas, 19.7% for light and medium oil and 12.0% for heavy oil.

Transportation costs - For the three months ended March 31, 2006, transportation costs were $9.4 million ($1.98 per boe) as compared to $7.1 million ($1.54 per boe) for the same period last year. The increase in transportation costs were primarily due to increasing cost pressures and higher production volumes in the first quarter of 2006 versus the same period in 2005. Transportation costs by product for the first quarter of 2006 were $0.41 per mcf for natural gas, $0.75 per bbl for light and medium oil and $2.72 per bbl for heavy oil, compared to $0.28 per mcf for natural gas, $0.71 per bbl for light and medium oil and $2.88 per bbl for heavy oil for the first quarter of 2005.

Operating expenses - Operating costs for the first quarter of 2006 were $36.1 million, an increase of 21% over the $29.8 million incurred for the same period a year ago. Primarily driven by strong commodity prices and record levels of activity, the industry is experiencing a significant pressure on all costs. These factors resulted in average per unit operating costs for the three months ended March 31, 2006 increasing to $7.62 per boe from $6.46 per boe in the same quarter of 2005. The breakdown of the first quarter 2006 operating costs was $1.09 per mcf for natural gas, $8.51 per bbl for light and medium oil and $10.20 per bbl for heavy oil, compared to $0.88 per mcf for natural gas, $7.73 per bbl for light and medium oil and $8.69 per bbl for heavy oil for the first quarter of 2005. Notwithstanding recent increases, Bonavista continues to place significant emphasis on the control of operating costs and maintains one of the lowest cash cost structures in the industry.

General and administrative expenses - General and administrative expenses, after overhead recoveries, for the three months ended March 31, 2006, increased 19% to $2.4 million from $2.0 million in the same period in 2005. On a per boe basis, general and administrative expenses increased 16% for the three months ended March 31, 2006 to $0.51 per boe from $0.44 per boe in the first quarter of 2005. This increase is largely due to the higher staffing levels required to manage our larger operations and increasing cost pressures, primarily driven by strong commodity prices and record levels of industry activity. Through the Technical Services Agreement with NuVista Energy Ltd., Bonavista provides administrative services and receives a fee determined on a cost recovery basis. The fee charged under this agreement for the first quarter of 2006 was $480,000, compared to $297,000 for the same period a year ago. In connection with its Trust Unit Incentive Rights Plan, Bonavista also recorded a unit-based compensation charge of $1.2 million for the three months ended March 31, 2006, compared to $594,000 for the same period in 2005.

Financing expenses - Financing expenses, which include interest expense related to bank debt and convertible debentures, decreased to $5.3 million for the three months ended March 31, 2006 from $6.0 million for the same period in 2005 and on a boe basis decreased to $1.12 for the three months ending March 31, 2006 from $1.31 per boe in the same period in 2005. These decreases are primarily due to lower interest on convertible debentures resulting from significant conversions into trust units since March 31, 2005. Amortization and accretion expenses related to the Trust's convertible debentures for the three months ended March 31, 2006 were $248,000 compared to $485,000 for the three months ended March 31, 2005. This decrease is largely attributable to the significant conversions of debentures into trust units since March 31, 2005. The amortization component reflects the charge to net income of the debenture issue costs over the term of the debenture. The fair value of the conversion option of the debentures is classified as equity. Over the term of the debentures, the carrying value will accrete to the principal balance at maturity, with the charge to accretion expense on convertible debentures. During the first quarter of 2006, Bonavista paid cash interest of $5.0 million compared to $4.7 million in 2005.

Depreciation, depletion and accretion expenses - Depreciation, depletion and accretion expenses increased 10% to $51.4 million for the three months ended March 31, 2006 from $46.7 million in the same period of 2005 due to higher production levels and a larger asset base in 2006. For the three months ended March 31, 2006 the average unit cost increased to $10.85 per boe from $10.11 per boe in the same period of 2005. These increases are due to the overall higher cost of adding new reserves, which is a trend being experienced throughout the industry.

Income and other taxes - For the three months ended March 31, 2006, the provision for income and other taxes was $250,000 compared to a reduction of $1.4 million for the same period of 2005. The increase in the provision for income and other taxes for the three months ended March 31, 2006 over the same period a year ago, was largely due to higher levels of net income generated in the first quarter of 2006 compared to the first quarter of 2005. For the three months ended March 31, 2006, Bonavista paid capital tax installments of $906,000 compared to $603,000 of capital and income taxes for the same period a year ago. The increase in the installments was due to the increase in capital tax base period over period.

Funds from operations and net income - For the three months ended March 31, 2006, Bonavista experienced a 24% increase in funds from operations to $127.4 million ($1.27 per unit, basic) from $102.7 million ($1.09 per unit, basic) recorded in the same period in 2005. Net income for the three months ended March 31, 2006, increased to $75.4 million ($0.75 per unit, basic), which represents a 31% increase from $57.5 million ($0.61 per unit, basic) in the first quarter of 2005. The increases in both funds from operations and net income in both periods were largely attributable to increases in production levels and commodity prices realized.

Capital expenditures - Capital expenditures for the three month period ended March 31, 2006, were $101.7 million consisting of $96.5 million of exploitation and development spending and $5.2 million of net property acquisitions. For the same period in 2005, capital expenditures were $58.0 million, consisting of $51.4 million of exploitation and development spending and $6.6 million of net acquisitions.

Liquidity and capital resources - As at March 31, 2006, bank debt, including working capital deficiency, was $426.7 million with an attractive debt to annualized funds from operations ratio of 0.8:1 (1.0:1 including convertible debentures). With our banking facility of $600 million, Bonavista has $173.3 million of unused bank borrowing capability, leaving significant flexibility to finance future expansions in our capital programs or acquisition opportunities as they arise.

In 2006, Bonavista plans to invest between $280 and $300 million (of which $101.7 million has been spent to the end of March 31, 2006to expand its Core Regions, which will be financed through a combination of funds from operations and bank debt. The Trust is committed to the fundamental principle of maintaining financial flexibility and the prudent use of debt. As such, the 2006 capital expenditure program is based on using a conservative amount of debt in our financing structure.

Unitholders' equity - As at March 31, 2006, Bonavista had 100,863,000 equivalent Trust Units outstanding. This includes 12,511,267 Exchangeable Shares, which are exchangeable into 17,535,667 additional Trust Units. The exchange ratio in effect at March 31, 2006 for Exchangeable Shares was 1.40159 to 1. As at May 11, 2006, Bonavista had 101,560,390 equivalent Trust Units outstanding. This includes 12,467,728 Exchangeable Shares which are exchangeable into 17,629,617 additional Trust Units. The exchange ratio in effect at May 11, 2006 for Exchangeable Shares was 1.41402 to 1.

As a result of minimal conversions in 2005 of Exchangeable Shares into Trust Units, Bonavista elected to redeem 10% of its Exchangeable Shares outstanding on March 16, 2006. This redemption will allow the Trust to manage the dilution created by the compounding effect of the Exchangeable Shares, maintain an optimal capital and tax efficient trust structure while managing the reinvestment of capital without adverse tax consequences to the Trust and its Unitholders. In connection with this redemption, Bonavista has exercised its overriding "redemption call right" to purchase such Exchangeable Shares from holders of record on March 16, 2006. Each redeemed Exchangeable Share was exchanged for Trust Units in accordance with the exchange ratio in effect at March 15, 2006, rounded to the nearest whole trust unit.

As at March 31, 2006, Unitholders' equity included $1.5 million for the ascribed value of the conversion feature of convertible debentures. This amount was determined at the time of issue and subsequently reduced by the amounts attributed to debentures that have been converted into Trust Units. Of the 100,000, 7.5% convertible debentures issued on January 29, 2004 there have been 77,937 of these debentures converted to Trust Units, leaving 22,063 debentures with a principal amount of $22.1 million outstanding at March 31, 2006. On December 31, 2004, the Trust also issued 135,000, 6.75% convertible debentures in conjunction with a property acquisition in British Columbia. These debentures have a principal amount of $135 million and from date of issuance to March 31, 2006 there have been 81,909 of these debentures converted to Trust Units, leaving 53,091 debentures outstanding with a principal amount of $53.1 million.

Distributions - For the three months ended March 31, 2006, the Trust distributed $80.9 million, amounting to 63% of funds from operations generated during the period, while the remaining 37% of funds was reinvested in exploitation, development and acquisition programs.

Bonavista announces its distribution policy on a quarterly basis. The amount of the cash distributions is determined by the Board of Directors and is dependent upon the commodity price environment, production levels, and the amount of capital expenditures to be financed from funds from operations. Bonavista's current monthly distribution rate is $0.33 per Trust Unit. This monthly distribution is comprised of the regular base distribution of $0.28 per Trust Unit plus a supplementary distribution of $0.05 per Trust Unit due to the significant strength in commodity prices currently being realized. The base distribution rate assumes realized commodity prices of $8.00 CDN per gj at AECO for natural gas and $58.00 CDN per barrel at Edmonton for light crude (this equates to approximately $8.40 US per mmbtu NYMEX natural gas and $50.00 US per barrel WTI crude oil). While current natural gas prices are below this level, the current strength in oil prices significantly offsets this shortfall. Our supplementary distribution is anticipated to be maintained while commodity prices remain strong. The combined regular base and supplementary cash distribution incorporates the withholding of sufficient cash flow to be used for the financing of capital expenditures in order to maintain the current production base and provide sustainable distributions in the long-term.

Quarterly financial information -The following table highlights Bonavista's performance for the eight quarterly periods ending on June 30, 2004 to March 31, 2006. For the quarterly periods ending on June 30, 2004 to December 31, 2004, net income has been restated and reduced by the reclassification of debenture interest and net income attributable to Exchangeable Shares. Up to December 31, 2004, the Exchangeable Shares did not meet the conditions for equity treatment for these periods under the accounting abstract "Exchangeable Shares Issued by Subsidiaries of Income Trusts". Subsequent to December 31, 2004, the terms of the Exchangeable Shares were amended, resulting in the Exchangeable Shares being classified as equity of the Trust:



------------------------------------------------------------------------
2006 2005
-------- ---------------------------------------
March December September June March
31 31 30 30 31
-------- --------- --------- --------- --------
($ thousands, except
per unit amounts)
Production revenue 230,241 288,680 241,084 194,961 187,697

Net income before non-
controlling interest 75,410 103,759 79,242 62,461 57,480

Net income 75,410 103,759 79,242 62,461 57,480

Net income per unit:

Basic 0.75 1.05 0.82 0.65 0.61

Diluted 0.74 1.01 0.79 0.64 0.60
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------------------------------------------------------------------------
2004 (restated)
------------------------------
December September June
31 30 30
---------- ---------- ------
($ thousands, except per
unit amounts)
Production revenue 155,077 154,265 148,867

Net income before non-
controlling interest 51,199 49,032 48,458

Net income 41,780 39,613 39,038

Net income per unit:

Basic 0.62 0.61 0.61

Diluted 0.61 0.60 0.60
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Since its reorganization into an energy trust on July 2, 2003, Bonavista has experienced growth in production volumes in each quarter. Production revenue has increased over the past eight quarters due to the impact of increased production levels and the trend of increasing oil and natural gas commodity prices. Over this period,production revenue has increased 55% and net income before non-controlling interest related to exchangeable shares has increased 56%. In the first quarter of 2006, production revenue and net income before non-controlling interest were lower than the previous two quarters due to the decrease in the price of natural gas.

Multilateral Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings

Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Trust is accumulated and communicated to the management as appropriate to allow timely decisions regarding required disclosure. Bonavista's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have concluded that the Trust's disclosure controls and procedures have been designed to provide reasonable assurance that material information related to the Trust, including its consolidated subsidiaries, is made known to them by others within those entities during the period in which the interim filings have been prepared. It should be noted that while the CEO and CFO believe that the Trust's disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the disclosure controls and procedures will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute assurance that the objectives of the control system are met.

OUTLOOK

The Trust continues to benefit from all the same qualities that drove the success of Bonavista Petroleum Ltd. as a public corporation prior to its conversion to an energy trust. We continue to apply the same proven principles and execute our strategy in a disciplined and cost-effective manner. The foundation of this strategy is to actively pursue low to medium risk drilling opportunities on the extensive undeveloped land base within our geographically concentrated areas of operations. Despite spending a record amount on exploitation and development activities in 2005 and the first quarter of 2006 and drilling over 470 wells, our inventory of quality drilling opportunities continues to increase in 2006. This increase in inventory can be directly attributed to the detailed and tireless work of our talented Bonavista team, who possess the track record and a solid understanding of the Western Canadian Sedimentary Basin. We also continue to search for strategic acquisition opportunities where we can add value utilizing our own technical expertise. This prudent approach to our capital investment program has been very effective in the past and together with our steadfast commitment and attention to detail, will provide the foundation for the future success of the Trust. Today, our efficiency, productivity, activity and profitability remain at the highest levels in our eight year history.

For 2006, Bonavista's preliminary capital budget includes drilling approximately 340 to 360 wells on existing lands in Bonavista's four Core Regions. Similar to 2005, these locations generally consist of low to medium risk prospects drilled within close proximity of our owned and operated infrastructures. Assuming a forecasted 15% increase in industry service costs in 2006, the capital required to complete this drilling program and our complementary acquisition program would be in the $280 to $300 million range and should result in modest growth in average daily production levels to between 53,000 and 54,000 boe per day in 2006.

We are proud of our achievements since converting to an energy trust in mid-2003 and are very excited about the growing opportunities that exist for Bonavista in the future. We sincerely appreciate the support of all our Unitholders who endorsed our decision to reorganize into the Trust. We would also like to thank our employees for their significant effort and their continued enthusiasm and excitement as we pursue this phase as an energy trust. Our experienced team remains committed to applying the same proven strategies within our efficient trust structure, to continue adding unitholder value in the oil and natural gas business for many years to come.



Consolidated Balance Sheets March 31, December 31,
(thousands) 2006 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
(unaudited)
Assets:

Accounts receivable $ 98,941 $ 105,173
Oil and natural gas properties and equipment 1,842,679 1,788,398
Goodwill 41,321 41,321
------------------------------------------------------------------------

$ 1,982,941 $ 1,934,892
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Unitholders' Equity:

Accounts payable and accrued liabilities $ 143,144 $ 133,080
Long-term debt 382,507 343,802
Other long-term obligations 4,134 4,896
Convertible debentures 70,891 87,866
Asset retirement obligations 86,170 82,819
Future income taxes 178,071 178,919
Unitholders' equity:
Unitholders' capital 805,353 769,629
Exchangeable shares 76,427 92,370
Contributed surplus 3,012 2,456
Convertible debentures 1,528 1,892
Accumulated earnings 231,704 237,163
------------------------------------------------------------------------
1,118,024 1,103,510
------------------------------------------------------------------------
$ 1,982,941 $ 1,934,892
------------------------------------------------------------------------
------------------------------------------------------------------------


Consolidated Statements of Operations and Accumulated Earnings
(thousands, except per unit amounts)
Three Months
ended
March 31,
2006 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
(unaudited) (restated)
Revenues:
Production $ 230,241 $ 187,697
Royalties (48,508) (38,817)
------------------------------------------------------------------------
181,733 148,880
------------------------------------------------------------------------
------------------------------------------------------------------------
Expenses:
Operating 36,131 29,823
Transportation 9,384 7,099
General and administrative 2,434 2,049
Financing 5,279 6,044
Amortization and accretion of convertible
debentures 248 485
Unit-based compensation 1,173 594
Depreciation, depletion and accretion 51,424 46,679
------------------------------------------------------------------------
106,073 92,773
------------------------------------------------------------------------
------------------------------------------------------------------------
Income before taxes 75,660 56,107
Income and other taxes (reduction) 250 (1,373)
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income 75,410 57,480
Accumulated earnings, beginning of period 237,163 258,452
Cash distributions (80,869) (63,284)
Retroactive application of changes in
accounting policies - (53,404)
------------------------------------------------------------------------
Accumulated earnings, end of period $ 231,704 $ 199,244
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income per unit - basic $ 0.75 $ 0.61
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income per unit - diluted $ 0.74 $ 0.60
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

Consolidated Statements of Cash Flows
(thousands)
Three Months
ended
March 31,
2006 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
(unaudited)
Cash provided by (used in):

Operating Activities:

Net income $ 75,410 $ 57,480
Items not requiring cash from operations:
Depreciation, depletion and accretion 51,424 46,679
Amortization and accretion of convertible
debentures 248 485
Unit-based compensation 1,173 594
Future income taxes (reduction) (848) (2,566)
Asset retirement expenditures (654) (606)
Change in non-cash working capital items 6,675 (18,351)
------------------------------------------------------------------------

133,428 83,715
------------------------------------------------------------------------
------------------------------------------------------------------------

Financing Activities:
Issuance of equity, net of issue costs 1,577 1,399
Issuance of convertible debentures, net of
issue costs - (5)
Cash distributions (80,869) (63,284)
Increase in long-term debt 38,705 29,958
Change in non-cash working capital items 1,350 4,095
------------------------------------------------------------------------

(39,237) (27,837)
------------------------------------------------------------------------
------------------------------------------------------------------------

Investing Activities:
Exploitation and development (96,455) (51,433)
Property acquisitions (5,252) (7,122)
Property dispositions 7 562
Change in non-cash working capital items 7,509 2,115
------------------------------------------------------------------------

(94,191) (55,878)
------------------------------------------------------------------------
------------------------------------------------------------------------

Change in cash - -
Cash, beginning of period - -
------------------------------------------------------------------------

Cash, end of period $ - $ -
------------------------------------------------------------------------
------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


Notes to Interim Consolidated Financial Statements

For the three months ended March 31, 2006 (unaudited)

Bonavista Energy Trust (the "Trust" or "Bonavista") is an open-ended unincorporated investment trust governed by the laws of the Province of Alberta. The Trust was established on July 2, 2003 under a Plan of Arrangement entered into by the Trust, Bonavista Petroleum Ltd. ("BPL") and its subsidiaries and partnerships and NuVista Energy Ltd. Under the Plan of Arrangement, a wholly-owned subsidiary of the Trust amalgamated with BPL and became the successor company. The Trust has two significant subsidiaries in which it owns 100% of the common shares of BPL (excluding the exchangeable shares) and 100% of the units of Bonavista Trust (2003). The activities of these entities are financed through interest bearing notes from the Trust and third party debt as described in the notes to the financial statements. The business of the Trust is carried on through the entities owned by the subsidiaries of the Trust, Bonavista Petroleum Partnership ("BP") and Bonavista Petroleum Limited Partnership. The net income of the Trust is generated from interest on notes advanced to its subsidiaries, royalty payments on oil and gas assets owned by BP, as well as any dividends or distributions paid by its subsidiaries. The Trustee must declare payable to the Trust Unitholders all of the taxable income of the Trust.

The consolidated financial statements include the accounts of the Trust and its wholly-owned subsidiaries, and have been prepared by management in accordance with Canadian Generally Accepted Accounting Principles. The interim consolidated financial statements and notes should be read in conjunction with the consolidated financial statements for the year ended December 31, 2005. The March 31, 2005 financial statements have been restated for the change in accounting policy related to exchangeable shares - non-controlling interest. Certain amounts have been reclassified to conform to current year's presentation.

1. Asset retirement obligations:

The Trust's asset retirement obligations result from net ownership interests in oil and natural gas assets including well sites, gathering systems and processing facilities. The Trust estimates the total undiscounted amount of expenditures required to settle its asset retirement obligations is approximately $424.9 million (2005 - $286.6 million) which will be incurred over the next 51 years. The majority of the costs will be incurred between 2011 and 2036. A credit-adjusted risk-free rate of 7.5% (2005 - 7.5%) and an inflation rate of 2% (2005 - 1.5%) was used to calculate the fair value of the asset retirement obligations.



A reconciliation of the asset retirement obligations is provided below:

------------------------------------------------------------------------
Three Months
ended
March 31,
2006 2005
------------------------------------------------------------------------
(thousands)
Balance, beginning of period $ 82,819 $ 58,531

Accretion expense 1,502 1,047
Liabilities incurred 2,374 504
Liabilities acquired 129 570
Liabilities settled (654) (606)

------------------------------------------------------------------------
Balance, end of period $ 86,170 $ 60,046
------------------------------------------------------------------------
------------------------------------------------------------------------


2. Long-term debt:

Bonavista has a revolving bank loan facility with a maximum borrowing of $600 million. All terms and conditions of the bank loan facility remain unchanged from December 31, 2005.

3. Convertible debentures:

The debt component of the debentures has been recorded net of the fair value of the conversion feature and issue costs. The fair value of the conversion feature of the debentures in Unitholders' equity at the date of issue was $4.7 million. The issue costs are amortized to earnings over the term of the obligation and the debt component of the obligation is adjusted for the amortization as well as for the portion of issue costs relating to conversions. The debt portion is accreted over the term of the obligation to the principal value on maturity with a corresponding charge to net income. The following table sets out the convertible debenture activities to March 31, 2006:



------------------------------------------------------------------------
Debt Equity
Component Component
------------------------------------------------------------------------
(thousands)
Balance, December 31, 2005 $ 87,866 $ 1,892

Accretion 45 -
Issue expenses related to conversions to trust units 349 -
Amortization of issue expenses 203 -
Conversion to trust units (17,572) (364)

------------------------------------------------------------------------
Balance, March 31, 2006 $ 70,891 $ 1,528
------------------------------------------------------------------------
------------------------------------------------------------------------

4. Unitholders' capital and exchangeable shares:

a) Authorized:

Unlimited number of voting trust units.

b) Issued and outstanding:

(i) Trust units:

------------------------------------------------------------------------
Number of
Units Amount
------------------------------------------------------------------------
(thousands)
Balance, December 31, 2005 80,287,596 $769,629

Issued on conversion of convertible debentures 645,530 17,572
Issued on conversion of exchangeable shares 2,225,331 15,943
Issued upon exercise of trust unit incentive
rights 168,875 1,577
Issue costs, related to debenture conversions - (349)
Adjustment to equity component of debenture on
conversion - 364
Unit-based compensation - 617
------------------------------------------------------------------------

Balance, March 31, 2006 83,327,332 $805,353
------------------------------------------------------------------------
------------------------------------------------------------------------

(ii) Contributed surplus:

------------------------------------------------------------------------
Amount
------------------------------------------------------------------------
(thousands)

Balance, December 31, 2005 $ 2,456

Unit-based compensation 1,173
Exercise of trust unit incentive rights (617)
------------------------------------------------------------------------

Balance, March 31, 2006 $ 3,012
------------------------------------------------------------------------
------------------------------------------------------------------------

(iii) Exchangeable shares:

------------------------------------------------------------------------
Number Amount
------------------------------------------------------------------------
(thousands)

Balance, December 31, 2005 14,101,029 $ 92,370

Exchanged for trust units (1,589,762) (15,943)
------------------------------------------------------------------------

Balance, March 31, 2006 12,511,267 $ 76,427
------------------------------------------------------------------------
------------------------------------------------------------------------

Exchange ratio, end of period 1.40159 -
------------------------------------------------------------------------

Trust units issuable on exchange 17,535,667 $ 76,427
------------------------------------------------------------------------
------------------------------------------------------------------------


c) Trust unit incentive rights plan:

For the three months ended March 31, 2006 there were 66,500 trust units rights issued with an average exercise price of $38.23 per unit and an estimated fair value of $9.36 per unit. In addition, there were 2,829,700 trust unit rights outstanding with an average exercise price of $21.96 per unit as at March 31, 2006.

d) Per unit amounts:

The following table summarizes the weighted average trust units, exchangeable shares and convertible debentures used in calculating net income per unit:



------------------------------------------------------------------------
Three Months
ended,
March 31, 2006
------------------------------------------------------------------------
Trust units 81,167,118
Exchangeable shares converted at period end exchange ratio 19,284,859
------------------------------------------------------------------------
Basic equivalent trust units 100,451,977
Convertible debentures 3,137,074
Trust unit incentive rights 1,258,602
------------------------------------------------------------------------

Diluted equivalent trust units 104,847,653
------------------------------------------------------------------------
------------------------------------------------------------------------


For the purposes of calculating net income per unit on a diluted basis, the net income has been increased by $1.7 million with respect to the accretion, amortization and interest on the convertible debentures.

5. Financial instruments:

a) Hedge instruments:

As at March 31, 2006, the Trust has hedged by way of costless collars to sell crude oil and natural gas as follows:



------------------------------------------------------------------------
Volume Average Price Term
------------------------------------------------------------------------

10,000 gjs/d CDN$ 8.50-CDN$ 12.25-AECO April 1, 2006
- October 31, 2006
6,000 bbls/d US$ 47.00-US$ 61.14-WTI April 1, 2006 - June 30, 2006
1,000 bbls/d CDN$ 61.00-CDN$ 75.00-WTI April 1, 2006 - June 30, 2006
7,000 bbls/d US$ 53.43-US$ 65.54-WTI July 1, 2006
- September 30, 2006
7,000 bbls/d US$ 55.29-US$ 70.94-WTI October 1, 2006
- December 31, 2006
3,000 bbls/d US$ 58.67-US$ 79.33-WTI January 1, 2007
- March 31, 2007
1,000 bbls/d US$ 60.00-US$ 75.00-WTI April 1, 2007 - June 30, 2007
------------------------------------------------------------------------


As at March 31, 2006, the market deficiency of these financial instruments was approximately $10.7 million.

b) Physical purchase contracts:

As at March 31, 2006, the Trust has entered into direct sale costless collars to sell natural gas as follows:



------------------------------------------------------------------------
Volume Average Price (CDN$/gj) Term
------------------------------------------------------------------------

40,000 gjs/d $7.63-$11.16 April 1, 2006 - October 31, 2006
5,000 gjs/d $8.50-$11.75 November 1, 2006 - March 31, 2007
------------------------------------------------------------------------


INVESTOR INFORMATION

Bonavista Energy Trust is a natural gas weighted energy trust which is committed to maintaining its emphasis on operating high quality oil and natural gas properties, delivering consistent distributions to unitholders and ensuring financial strength and sustainability.

Corporate information provided herein contains forward-looking information. The reader is cautioned that assumptions used in the preparation of such information, particularly those pertaining to cash distributions, production volumes, commodity prices, operating costs and drilling results, which are considered reasonable by Bonavista at the time of preparation, may be proven to be incorrect. Actual results achieved during the forecast period will vary from the information provided herein and the variations may be material. There is no representation by Bonavista that actual results achieved during the forecast period will be the same in whole or in part as those forecast.

Contact Information

  • Bonavista Petroleum Ltd.
    Keith A. MacPhail
    President & CEO
    (403) 213-4315
    or
    Ronald J. Poelzer
    Executive Vice President & CFO
    (403) 213-4308
    or
    700, 311 - 6th Avenue SW
    Calgary, AB T2P 3H2
    (403) 213-4300
    Website: www.bonavistaenergy.com